Why High-Income Professionals Are Investing in Dirt, Not Buildings

And then one sunny Friday afternoon, I was having one of the best days that I'd ever had as a sales rep. Like, where you're excited to tell your boss, like, how much money you made and, you know, get the atta boys.

I met him over at Starbucks.

It was June, it was sunny, you could smell the coffee.

I was excited, all pepped up, and before I could get the words out of my mouth about how great of a day I had, he fires me.

And just like that, my cozy corporate career in medical device sales was over.

Foreign.

Welcome to Truly Passive Income.

I'm Neal Henderson.

I'm flying solo today, but we've got just a fantastic guest.

Today's guest is Brandon Cobb, CEO of HBG Capital and founder of the land Development accelerator.

After an unexpected exit from medical device sales, Brandon built a business that turns raw land into new housing communities.

What makes his approach stand out is how he creates value before construction even starts by securing approvals and lining up national builders before taking big risk.

Brandon, great to have you here.

The pleasure's all mine.

Thanks for having me today.

Absolutely.

So listen, we're, we're on a little bit of a time crunch today, so I want to get right to it.

Why don't you give us the high level overview how you went from medical device sales, which is a very lucrative, you know, business to be in often to, to, you know, the uncertainty of real estate.

Yeah.

You know, if you had told me 10 years ago we'd be inventing these new housing communities, I'd have looked at you like you had 10 heads.

Because I had no desire to do all that.

My whole career and passion was medical cells.

Right.

I was young guy in his 20s, getting to be in surgery every single day, rubbing shoulders with orthopedic surgeons.

And, you know, it took me years to break into that industry.

Like, I absolutely loved what I did.

I had no desire to go into real estate or do anything else.

And then one sunny Friday afternoon, I was one of the best days that I'd ever had as a sales rep. Like, where you're excited to tell your boss, like, how much money you made and, you know, get the attaboys.

And I'll never forget that day I met him over at Starbucks.

It was June, it was sunny, you could smell the coffee.

I was excited, all pepped up.

And before I could get the words out of my mouth about how great of a day I had, he fires me.

And just like that, my cozy corporate career in medical device sales was over.

And, you know, all I Remember that day thinking.

Thinking was, what did I do wrong?

What did I do wrong?

What did I do wrong?

And after four or five hours of shock wearing off, I realized an important lesson, which is that nobody's going to look out for my financial wellbeing.

But man, you can be as low as you want to a company.

Put in the decades, the blood, sweat and tears, climb the ladder.

You're just one merger and acquisition economic event, restructuring away from getting let go.

And so I started multiple businesses Right after that.

I started a course on how to break into medical sales that failed.

I started a online motivational blog that failed.

I started a.

You're, you're going to love this one.

I was really into the Tony Robbins thing and I said, you know what?

That's what I want to do.

I want to be a life coach.

And turns out not many people want to take life coaching advice from a 26 year old.

So that failed.

But then, as you know, I discovered this amazing vehicle called real estate.

And at first I made all the mistakes, sold all my retirement accounts to fund my first project.

Don't do that.

If you're listening to this dumb, dumb, dumb, you can actually use your retirement accounts to invest in real estate.

I didn't know, but I paid the fees, so I did that.

I lost 40 grand on my first new build.

I mean, just fumbled around, figured it out.

But I did over 187 transactions over the course of a number of years and started to really figure this thing out.

And I started flipping houses.

Then I started building new construction houses and that was going really well.

So we wanted to grow and scale the number of homes we were doing.

So we needed to go after land that was fit for building a lot of houses.

And that's when we kind of got in the land development.

We got these knocks on the door from these big national builders that wanted to pay us a crazy amount of money for the land.

And we said, heck yeah, you can have it.

And do you want us to do the one across the street for you too?

Like, we'll develop that one for you too.

We own it.

And so that's how we got into land entitlement and land development.

Okay, well, I want to diverge for just a second to something you said of, of when you, when you got let go from that medical device sales job.

Is that you, there's a bunch of, you tried to start a bunch of different businesses.

And, and one thing I've learned recently, and as another failed entrepreneur, you know, starting multiple business before, again Before I discovered real estate is that many people start off the wrong way, which is they come up with an idea for a business, and then they go out and they try and find customers.

And it took me, I'm 56 now, it took me probably 50 years to discover this, that what you need to do is go out and find the customers and solve a problem for them and then offer that problem, that problem solving as a product and find out, you know, and well, and at the same time, also ask them if they're willing to pay for it.

And so, you know, I applaud you for trying all those different things before you settled on real estate.

And we're all the better for it.

But it's such a.

An interesting mindset shift that finally hit me over the head in the last probably six years or so.

Yeah, you just don't know what's going to work and what's not.

A lot of people, that's like the unsung song of entrepreneurship.

For every successful, you know, business somebody has, it's probably not their first.

They've probably tried something multiple, multiple, multiple times.

And I think people drastically underestimate the just how long it takes to build a successful business.

I mean, you know, we're talking about a decade, you know, all the stuff that's great and actually doing really well.

You know, it takes you a good 10 years to really build something that is just really, really profitable and kind of stable out.

Yeah.

All right.

Well, we didn't bring you in here to talk about our failed businesses.

I want to talk about the successful ones.

So for listeners who are new to this space, can you explain to me and them how you take a piece of raw land and turn it into something that a builder wants to buy and where the value gets created along the way?

Yeah.

So land development means a lot of different things to a lot of different people.

It's kind of this umbrella term.

And so I'll break it down.

So it's very, very simple.

There's three phases to development.

Most people are familiar with the third one, which is the actual, you know, vertical construction of.

Not a lot of people know that that community was developed before those homes were built.

So I like to think of development as, like, horizontal construction, and building is vertical.

And so there's a developer that actually developed that neighborhood and sold the lots to the builder.

Everyone thinks the builder is the one that, like, did the whole neighborhood.

It's not true.

It's the developer that did it.

Sometimes the builder is the developer.

But in a lot of times it's.

It's a developer that is separate from the builder.

So that's like phase two.

That's when you can actually go grade it out, put the roads in, put the sewer, the water.

You're basically making a neighborhood with no homes.

So that's phase two.

And then you can sell the individual lots, you know, to the builder.

And then there's phase one, which not a lot of people know about.

This is when this is called entitlement.

And that's just a fancy schmancy word for approvals from the city.

So you can't just go and start developing a piece of farmland.

There's got to be a plan in place, right?

And you got to have the approvals from the city.

But when you take it from farmland to approved housing community, you create a lot of value there, right?

A piece of agricultural land that you can just farm something on is worth a lot less money than something you can build 5,100, 200 homes on.

So you create a ton of value during that process.

And the way to think about entitlement, this is how I really understood it and it kind of clicked.

Here in America, we're blessed to have these amazing communities.

We have stormwater that doesn't flood and kill people.

We've got sign ordinances where you can't just go put your own sign and stick it next to a stop sign or anything.

Like, there's rules.

And people don't understand that.

They just don't know because they're not in this world.

When we get something approved, we're submitting these civil drawings to the city.

And think of civil drawings as the architectural plans of a home.

So just like a builder can't build a home without the architectural plans, a developer can't develop the land without the civil drawings.

Those show where the roads are going to go, where the water is going to go, how deep the sewer is going to go, where is this stormwater going to run, all that kind of stuff.

And so once you've got that in place, the city has their individual departments that have to look at it to make sure it's safe.

So the fire department's going to look at it.

They're going to go, okay, is there a fire hydrant every 150ft to be able to get to the homes?

Are the homes too close to the power lines or is that a fire hazard?

Public works is going to look at it and go, okay, do we have, do we have curb and gutter that's going to properly drain Stormwater departments going to look at it going, okay, is this safe for the water to run around it?

Those departments that work for the city, they are in charge of approving all these developments and making sure they're safe.

So that's the, that's actually what the entitlement process is, is you're submitting your plans to be approved by each department so that you have a safe community that enters.

And of course, my favorite thing about this is because there's three phases to development, there's three opportunities to force appreciate the asset, which is great for investors.

And you know, people like me where, you know, when you take it from raw land to entitled dirt, it's worth a whole lot more money.

When you put the roads and infrastructure in, it's worth a lot more money.

And when you build the homes, that's when the most value is created.

You know, you can force appreciate even more.

So and you can sell along the way.

In any of these phases, you have multiple exit strategies baked in.

I once heard another real estate investor say that the value of the land is based on what you can do above the dirt in a real.

True.

Trying to very simply kind of explain.

And that's, that's kind of a very glib way of saying what you just described, which is once, you know, once you can get the community to buy in and approve on what you're allowed to do with that dirt, that is really where the value comes from, you know, and same thing if, even if it already has a building, because we deal with, with vacant buildings all the time that we want to, you know, convert to something else.

And sometimes the city is very open to that and other times the city's not.

And, and so the value of that building can change very quickly just based on what, what you're going to be allowed to do with that piece of land.

Yep, 100%.

And I'll tell you a little hack, because people think that this is something that's extremely difficult and just very complicated.

And you know, there's some, there's some stuff involved with working the city that's a pain in the booty.

But all you gotta do is go meet with your local planning director if you're in a suburb, go meet with your council person if you're in a major metropolis area and just say, hey, you know, I'm new, I'm looking at doing some developments in your neck of the woods.

Wanted to come put a face with a name before, you know, I came and presented anything.

What are some things developers that have done to create win wins for, you know, you and the community.

Hey, Mr.

Counsel Person or Mr. Planning Director, what are people calling and complaining about the most?

Like what's blowing your phone up?

If you can figure out how to tie that problem into your development and solve it, like you've got their ear and you're looking for developer friendly municipalities.

That's really it, you know, for us.

Like we service national builders like Lennar, Dr. Horton, those kind of guys.

And so you can very easily just go google their neighborhoods and figure out like where they're building and those are the areas that we go to.

But before we ever spend any money and, and submit anything, we get the land under contract, we get a concept plan done.

That's just a basic plan that shows how many homes could potentially fit on this piece of land.

We take that to the council person or the planning director and if they're excited about it, then we take it to our list of builders.

And if they're excited about it and they give us a contract and they give us a deposit, we start the process there.

So that's kind of how we de risk it on the front end and how you can too, if you're, you know, doing this for the first time and you just want to make sure that you're not getting into a project that's not going to sell or not have any interest by the city.

Yeah.

Are you typically bringing in a land use attorney at any point or is that usually if only thing if something.

Starts to go wrong, it's kind of last resort.

Right.

So here's the thing.

Sometimes these city officials that are in charge of approving these communities, they're not developers and they don't, they don't know the bylaws like the back of their hand.

Like these are elected officials that genuinely want to help the community.

And here's the dirty little secret that I'm going to tell you about development.

A lot of people think they need to know everything before they get started or do this.

And I'm here to tell you, you will never know everything because every city, every municipality has bylaws that are different, has overlays that are different.

They're constantly changing them and not telling you.

It is impossible to understand and comprehend all that.

Your ability to be successful as a developer is about your ability to find and distill the information which AI has completely changed the game.

There it is.

It is the purveyor of information.

And so you don't need to know everything, you just need to know where to access the information, where to get it.

And so because of this, these council members and these elected officials will be like, nope, not approving this.

You know, I don't want this.

And it's like, well, you kind of have to, because it's zoned for this and I have the ability to do this.

And so if you're dealing with uneducated elected officials, then yeah, you're probably going to have to get a land use attorney if push comes to shove and, you know, get the project pushed through.

Got it.

So you focus on, I think you focus on entry level housing rather than luxury products.

Why is that where you see the biggest opportunity?

And what does that tell you about where the housing market still feels broken?

So less than 10% of the homes being built are entry level or affordable.

Little A affordable.

I'm not talking about big A.

Big A affordable is section 8 government housing.

We don't do that.

I'm talking about little A affordable.

What, what is little A affordable?

That's about what your middle class America can afford.

So, you know, right now that puts you in like the 300 thousands for house.

Right?

That's the type of product that we're focused on because less than 10% of the homes being built are in that price range, while at the same time, you have 33% of the home buying population, Millennials that have to buy a home, they're having kids, they're settling down.

And so I don't, I'm not a genius.

Like, there's a huge supply and demand imbalance there, right?

You've heard it on the news.

You've heard the number of homes short we are.

You've heard about the housing shortage.

That's what we need.

And so I'm just following what the data tells me.

Got it, got it.

You've said that one of the biggest mistakes that developers make is chasing the maximum density instead of designing with the end buyer and the community in mind.

And I've seen this.

I remember I was living in Vegas back when the real estate got really, really expensive.

And all of a sudden you started seeing these postage stamp houses, you know, three stories tall, where you could literally reach out your window and touch the house next to you.

Can you walk us through a deal where changing the product or layout made the project a lot more viable?

Yeah, I mean, I see it at least once a month we get a project that gets submitted to us.

It's a new Developer, they didn't do their homework and it's kind of sad because they paid the money, they took it all the way through and it'll be something like a 11 foot wide townhome.

And my feedback to them is who has an 11 foot wide townhome product?

Who's going to build that?

You know, all they did was just try to shorten the width so that they could stack as many of them as there's possible.

And they usually have to go back and get it amended.

And you know, because new developers just see dollar signs in there, in their eyes, they don't think of designing it with the end buyer in mind.

That's why what I'd mentioned earlier, whether you're with your concept plan, before you're doing any engineering, you want to get your builder to give you some feedback and make sure that the product that they have, you know, fits.

And of course we know what all of our national builder products are, right?

It's, you know, the smallest single family detached home they have is going to be about 30 foot.

So if you have five foot setbacks on each side of the home from where the property line to the side of the home is, you're going to need 40 foot wide, lots of, you know, if you have your front setbacks that are 35ft and your home is 60ft long, well, that's 95ft.

So you know, you probably need a 30 foot backyard.

So add 30ft on the 90.

So you need at least a 40 foot by 120 foot lot.

You know, that's kind of the smallest you're going to be able to pull off right there.

So yeah, you want to design it with the end product in mind, otherwise you're going to get stuck with a development that nobody wants.

Yeah, no, and it, you know, it's, you, you see it in, in people.

I mean, there's communities where, you know, the housing affordability crisis just like pushed people into those products.

But it's not like I know that those communities in Vegas that were building those little postage stamp homes with that ridiculously short setbacks, it became then really hard for those people to later on sell those properties.

You know, they bought them and they moved in and, and, and word starts to get out.

Like you may, if people are just absolutely desperate, they move.

They might, you know, they might buy those homes.

But a lot of times you just don't, you don't want to be, you don't want to be producing a product like that where it's like where desperate people will just buy it because they've got nothing else, you know.

That's right.

You, like a lot of people, you got hit with supply chain issues, rising costs, adjustable rate debt, and you've spoken openly about taking seven figure losses.

How did that period change the way you think about interest reserves, deal structure and communication with investors when things go wrong?

Oh yeah, I mean this was a huge one.

I think a lot of people do, especially Covid.

It' been a crazy past five, six years, man.

It's like how many black swan events can we throw it to?

A short period of time.

But yeah, I mean, luckily we had the liquidity to, you know, continue to float the payments.

We had done a really good job of having that interest reserve.

You know, we were expecting to be in and out of the homes in a year.

Right.

You know, you build and sell and you're in and out.

And I always kept double the amount of interest reserves that we thought we needed.

Well, the problem was when you've got a interest rate rising environment on adjustable because your construction loans, you're getting adjustable rate debt, you're not getting fixed rate rate debt on a construction loan.

And as you know, the most expensive part is actually when the home's built and your bank loans completely out and you, you know, you've drawn everything.

And so like our holding costs didn't double, they quadrupled because we got stuck holding homes for over a year.

Plus our holding costs doubled.

So it was a double whammy.

Plus prices came down.

And then we had the inflation issue because of the crazy what was going on with energy and everything else.

So I mean it was like a trifecta.

And so we had some losses on some deals that we did, but we learned a lot from it.

You know, most importantly is, you know, communicate.

Like when things go wrong, like our communication increases, you know, with our investor base.

That's the most important thing is, you know, bad news ain't gonna get better over time.

Right?

But being honest and just updating people as you go is so, so important.

And what was really interesting to me because that was our first go around with some capital losses was that when you hand, it's not whether or not you're going to go through your real estate career and just avoid losses your entire life, right?

Like you'd be a better investor than Warren Buffett.

So it's not if you're going to avoid the losses.

Nobody can do that.

It's how you handle the situation when that inevitably does come.

And what we discovered was if you handle it the right way, people do continue to invest with you, right?

You build a brand, you build a reputation that way.

So that's what we learned with investors.

It completely rewrote my mental frameworks around risk.

So a lot of what we do right now is not even about, like when I'm going to look for terms on financing.

I don't care about the rate as much as I care about my terms.

I learned that, I learned that.

Luckily I did not have to learn it the hard way.

Like, you know, we didn't have any foreclosures, you know, there's no bankruptcies or anything crazy.

We had, we had plenty of liquidity, luckily float it out.

But it completely rewrote how I write risk.

And so, you know, having multiple exit strategies, you know, baked into the deal.

If I would go back, I would make sure all those homes could pencil to rent and be able to refinance out because we're building some, a little bit higher priced homes.

At the time those homes were not available to do that.

So I wish that I had done that.

So everything we go forward is going to have that built in having the, the terms that we need.

So I, you know, you got to be able to negotiate with your lenders.

You know, I kind of just took things sort of at face value back then.

Okay, I guess the loan's alone now we get attorneys involved in every single transaction we do with lenders, buyers, I mean, every single thing.

And we make sure that we bake in enough time in the event that we do have some market event to give us the leeway that we need.

So if it's a two year loan, if I need it for two years, I'm getting a three year loan with six month extensions baked into it.

So I don't have that.

So that was another thing that we really, really learned there.

And then just business operations, becoming a better business owner, becoming a better leader in the organization.

Nothing really tests your leadership and business acumen like going through something crazy like that.

Right.

You come out on the other side a stronger and better person.

So yeah, it's quite the learning experience.

You don't really learn a whole lot when the market's going well and you know, inflation and rising home prices is, is painting over, you know, all your problems.

And so yeah, yeah man, a lot.

Of that hits home number one.

I'll just say with the investor communication I found that, you know, the, the less you communicate with the investors, the more stories they make up in their own mind about how things are going.

And, and the lack of communication, it's never good.

They never make up good stories in their head.

So always try and communicate over.

Communicate when things are not going perfectly and to just the multiple exit strategies.

You know, it's such a, such a great point.

And then.

And three, you know, Warren Buffett says you never know.

You never know who's skinny dipping till the tide goes out.

Yeah.

And we've learned a lot of people have been skinny dipping the last five years, you know, especially in the multifamily space.

And I'm usually going to be more inclined to invest with a group who's taken its lumps and has some scars, has maybe lost some money.

Chances are if you're investing with somebody who's never lost money, then they might have just gotten in when gotten in a bull market and just never experienced a bear market.

And I think that's a lot of what happened with the multif family.

You had all these guys that were just relying on cap rate compression and rents rising.

Well, then when all.

When all of a sudden all that turned, things got ugly in a hurry.

Oh, no, it did.

I got my capital in multiple syndications.

It's probably going to be stuck there a while.

And I've got some, some losses as an LP as well.

Yeah, yeah.

Well, well, listen, we're.

We're gonna start wrapping this up and I.

This has been a great conversation.

We're gonna have to have you back because I'm.

This has been a very interesting conversation.

I'd like to dig in more, but one of the questions we ask all of our guests is, is there a book that you find yourself recommending again and again to friends and colleagues?

You know, my recommendations tend to follow kind of where I'm at and what I'm interested in, you know, at the time.

You know, right now, Michael Singer's book the Untethered Soul is probably one of the best books I've read in a while.

You know, I've never been a big spiritual guy.

And for those who are listening right now, I was like, oh, you know, this is another religious talk.

It's not right.

Like, it's probably the only book that I've read where it was able to introduce spirituality and really allow me to understand meditation and what it does and the relationship that you have with yourself.

Because I never, I never understood meditation from listening to the voice in your head and There's a lot of stuff that talks about that, but it's like, what kind of relationship do you have with yourself?

Well, do you listen to how you talk to yourself?

And meditation is one of those things where you can actually listen to how you talk to yourself.

A lot of people use meditation the wrong way.

They're just like, I can't meditate because I just sit there and I can't think about nothing.

And that was me for my entire life.

I never could get into it.

But you listen to all these greats like Tim Ferriss talk about, hey, Tools of the Titans, his book, all his interviews, all the successful people, they use some form of meditation.

You're like, why can't I get this?

That book was what put spirituality and meditation in a different light for me to allow it to connect.

And it completely changed my life.

If you want to get hyped up about reading the Untethered Soul, go listen.

I highly recommend, listen to his book the Surrender Experiment.

It's his life when he applied these principles, and it's just really cool to see what happens.

It'll blow your mind.

And then that shows you what happens.

And then how to apply the Surrender Experiment is in the Untethered Soul.

So, great book there.

I'm 100% with you.

Can't recommend those two books enough.

And I'm now, now I'm hyped up.

I need to go back and reread them because I need a reminder and I've got some friends who probably need some of that medicine as well.

So.

Well, listen, Brandon Cobb, this has been fantastic.

It's been a pleasure just making your acquaintance.

If any of our listeners want to reach out to you and find out more about HBG Capital and what you guys are up to, what would be the best way for them to do that?

Yeah, so there, you know, there's two people that we serve.

The first are if you want to learn how to do what we're doing, maybe you're a builder and you want to expand the number of homes or you're flipping, you're a land flipper and you're ready to do some larger land deals, you can go to learnlanddevelopment.com go grab our free course.

There's interviews with civil engineers, city affairs.

Everything you need is on there and it's completely free.

If you like the idea of being part of community and getting your handheld through your first development deal, we've got our own mastermind community.

The video is on that website, learnlanddevelopment.com you can, you can grab it and watch it.

Book a call with me if you want to learn more, see if it's a fit.

The other is the investor base.

If you just like the idea of investing in pre sold development deals to national home builders, if you think that'd be a good part of your portfolio, you can go to hbgcapital.net forward/waitlist and you can watch our whole thesis.

And you can book a call with me if you want to learn more.

Again, it's pronounced Harry Bob Gary HBG capital.netforward/waitlist and if you want to grab our free ebook, um, you can go to the same website, just hbgcapital.net you can grab it.

Okay.

This has been great.

Thanks.

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